The House of Lords has delayed unveiling the new regulatory regime for claim management firms in a bid to strengthen the Compensation Bill.In a meeting of the grand committee this week Lord Hunt of Wirral moved to close any loopholes. He firmed up the need for transitional arrangements to regulate claim management firms with immediate effect once the Compensation Bill is passed. The Claims Standards Council, the voluntary watchdog for the sector, is widely tipped to become the regulator when the bill is passed. But CSC policy director Andy Wigmore believes the regulator is more likely to be a hybrid of stakeholders, including the FSA, the Office of Fair Trading and the Law Society. Wigmore says: “This regu- lation will be quite cataclysmic for firms that do not comply with the rules.” Possible Alternative Funding Models1: No case fees and 100 per cent levy Pros Consr Certainty of cost for the year ahead r Firms may dump cases and use the ombudsman r Remove worry from firm of consumer pursuing service as a cheap way to outsource complaints complaint with no merit to the ombudsman r Increased case numbers – caused by dumping of service cases on ombudsman – would mean that the levy r It could be viewed that spreading the costs would have to increase in subsequent yearsamong all IFAs in the form of a levy operated r Removal of flexible budget structure may resultlike an insurance policy for case fees and in needing to re-levy within the financial yearsmoothed incomer Firms may be more likely to refer consumersin a timely manner to the Financial OmbudsmanService in accordance with FSA rules2: Case fees payable depending on outcome (for example, firm “wins” = no case fee, firm “loses = case fee payable) Pros Consr “Polluter pays” model – only firms found r Cases “lost” would result in much higher feesto be “in the wrong” pay. (to cover cost of all other cases) r Incentive for firm to investigate complaints r Erosion of impartiality – firms may feel the and try to resolve them directly with consumer ombudsman had a vested interest in finding r Some firms unhappy that, even when a firm against the firm to get extra funding”wins” a case, they still get penalised by being r The majority of cases that go to ombudsman charged a case fee are not a simple “win”/”lose”. It would add considerably to the cost of the process if firms went on to dispute whether they had lost the case or notr It may mean that firms are more reluctant to refer cases to the Financial Ombudsman Service and therefore breach FSA rules3: IFA-related ombudsman costs subsidised by product providers No provision under current rules for cross-subsidies between different industry sectorsWhat do life offices think?